Italy’s banks are becoming increasingly resigned to accepting a government bail-out package expected to be announced soon, after weeks of resisting any interference from the state.
They have little exposure to “toxic” assets, but their capital ratios are low compared to banks in countries such as Germany and France, which have taken dramatic steps to recapitalise their banking systems.
The aid package could total an initial €15bn to €20bn, in the form of a mandatory convertible bond issue that banks could use to boost their core tier one capital ratios, a key measure of the soundness of a bank.
Italian banks currently have a core tier one ratio – which shows capital as a percentage of risk-weighted assets – of less than 7 per cent, and for some it is below 5 per cent, whereas their competitors in Europe have ratios of above 8 per cent.
Estimates of how much it will cost Italian banks to reach that figure are rising. In a report on Thursday, analysts at Banca Leonardo, an investment bank, said the country’s top 10 banks would require a combined €21.2bn to reach 8 per cent.
“This is an environment with special volatility, and investors are looking for a higher level of core tier one,” said Annamaria Benassi, banking analyst at Banca Leonardo.
There is no official requirement for the banks to raise capital, but analysts say a core tier one ratio of 8 per cent is likely to become the minimum standard for investors in a deepening financial crisis.
The Italian government is not expected to set a new benchmark for the country’s banks as part of the package, however, and it will be up to the banks themselves to decide whether they want to participate in the state aid package.
Banca Leonardo’s estimate is the highest of several that have emerged in recent days to suggest that Italian banks need a substantial capital injection.
Individual banks have taken measures to do so already, such as cancelling dividend payments and tapping shareholders. But the need for a government aid package modelled on that introduced in France is now pressing, analysts say.
Senior bankers in Milan told the Financial Times earlier this month that up to €30bn may be required for the banking system as a whole. So far no Italian bank has required the sort of bailout that was offered to Fortis, Royal Bank of Scotland, and other European banks.